Key part of bankruptcy plan OK'd

Ruling enables city to hold vote among creditors

SACRAMENTO - The city of Stockton cleared a hurdle in its bankruptcy case Monday, when a judge approved a key part of its strategy for exiting Chapter 9 protection over the objections of a lone creditor.

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By Scott Smith

recordnet.com

By Scott Smith

Posted Nov. 19, 2013 at 12:01 AM

By Scott Smith

Posted Nov. 19, 2013 at 12:01 AM

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SACRAMENTO - The city of Stockton cleared a hurdle in its bankruptcy case Monday, when a judge approved a key part of its strategy for exiting Chapter 9 protection over the objections of a lone creditor.

The ruling gave Stockton a green light to hold a vote by Feb. 10, asking its full list of creditors to approve or reject the city's plan of adjustment. Officials hope to have the bankruptcy wrapped up by mid-2014.

Yet an attorney for Franklin High Yield Tax-Free Income Fund and Franklin California High Yield Municipal Fund, which object to the plan, isn't done fighting the city.

James Johnston, who represents both Franklin entities, contends the city hasn't disclosed enough fine detail of how Stockton proposes to treat other creditors in tentative settlements already reached.

Without that financial information, Johnston said, Franklin isn't able to vote on Stockton's bankruptcy.

"This isn't a game of hide the ball," Johnston told U.S. Bankruptcy Judge Christopher Klein in a Monday hearing.

At issue was the plan of adjustment and disclosure statement the city filed Oct. 10, spelling out how it proposes to restructure millions of dollars in debt with its labor groups and bond holders.

Attorneys for several creditors said they support the city's court filings. They include some of the most strident opponents when Stockton filed bankruptcy June 28, 2012, such as Assured Guaranty Corp. and National Public Finance Guarantee Corp.

Absent a settlement, Stockton intends to pay Franklin $95,000 for $35 million in bonds issued in 2009 to build police and fire stations, among other projects.

Franklin stands to recoup just .27 percent, or a fraction of one percent on the dollar, of its investment.

Marc Levinson, Stockton's lead bankruptcy attorney, said in court that it is clear Franklin is going to vote against Stockton's bankruptcy exit strategy. He believes the investment firm has enough information because it has been in talks with the city for months.

"Franklin is not going through this with its eyes closed," Levinson said. "We want to move this along."

In his ruling, Klein said that at this stage he believes Stockton has disclosed sufficient detail. He may be more inclined to rule otherwise later in the process, when Stockton asks him to confirm the bankruptcy exit plan.

Now with the judge's approval, Stockton will distribute its updated bankruptcy plan by mid-December and ask creditors to file their vote by Feb. 10.

The parties will return to Klein's courtroom March 5, when Franklin and any other creditors who object to the plan may take Stockton to trial, which could last about three days. The judge may also hold a hearing at that time to confirm the city's plan.

The Stockton Ports, the city's minor league baseball team, has also failed to strike a deal with Stockton. The two parties are negotiating the team's use of the city-owned ballpark.

The judge last week granted the city an order forcing 7th Inning Stretch, the Ports' ownership, to show the city its internal business documents, despite objections from Pat Filippone, the Ports' president and part owner.

Outside of court Levinson said that Stockton hasn't stopped trying to settle all of its deals.

"We're still going to try to make peace with Franklin," he said. "We're still going to try to make peace with the Ports."